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. Last Updated: 07/27/2016

Alyoshin: Irkut Won't Exist in 2 Years

Privately controlled Sukhoi fighter jet maker Irkut Corp. will soon cease to exist, a top government official said Monday.

Irkut, which became the first Russian defense company to go public last week when 23 percent of its shares were sold on domestic bourses for $127 million, will be folded into a new national aircraft-building holding within two years, Boris Alyoshin told reporters.

"Irkut, conditionally speaking, will cease to exist in two years. It will enter the aircraft-building company," said Alyoshin, a former deputy prime minister who now heads the Federal Industry Agency, which oversees the defense sector.

The government plans to merge all the manufacturers and designers of Sukhoi, MiG, Tupolev and Ilyushin aircraft into a National Aircraft Building Corp. as part of its restructuring plan for the industry.

Alyoshin said the first stage of consolidation, which will take a year, calls for the creation of a managing company to coordinate the activities of consortium members. The second stage calls for evaluating consortium members' assets and finalizing the merger, he said.

The government either controls or fully owns all of the nation's aircraft building companies except Irkut. The government had owned 14.7 percent of the Irkutsk-based company, but that stake dropped to 13.4 percent after Friday's IPO, which included newly issued shares.

Management's stake also dropped -- to 50.3 percent from 70 percent, Irkut CEO Alexei Fyodorov said Monday, adding that foreigners bought roughly half of the shares offered Friday.

By law, foreigners are not allowed to own more than 25 percent of aircraft producers, but Alyoshin said new legislation would likely be adopted this year that would raise that barrier to 49 percent.

Neither Alyoshin nor Fyodorov could say how equity will be divvied up within the new consortium, but Fyodorov insisted that the consolidation would be good for Irkut shareholders.

In fact, Irkut actually first suggested the idea of creating the consortium, and potential investors were told in the company's IPO prospectus that joining was optional, Fyodorov said.

"If unacceptable risks emerge, we will think 10 times about joining," he said.

Irkut shares dropped 5 percent on MICEX on Friday, but only about $300,000 worth of shares changed hands.

There were no trades in Irkut shares on the RTS.